Will Tariffs Bankroll the Reshoring of Fertilizer Production?

Reshoring fertilizer production is of top priority according to Agricultural Secretary, Brooke Rollins, who recently announced a multi-pronged plan to expand the fertilizer industry in the United States. While there is no arguing the fact that American farmers are struggling to afford continued price increases on inputs, can the country afford billions of dollars in investments to build a competitive and resilient fertilizer sector here in the United States?

U.S. Dependence on Imported Fertilizer

Reliance on imported fertilizer is an issue that multiple administrations have attempted to tackle utilizing a variety of economic mechanisms. Yet, the United States still sources 27 million tons of fertilizer every year from outside the country, close to a $10 billion dollar value.

We can trace our dependence on imports back to the early 2000s when natural gas prices soared and crop prices dipped. High production costs coupled with decreasing demand for fertilizer led to plant shutdowns and a consolidation of the fertilizer industry in the U.S. Today, only four companies control 75% of domestic production; a drastic shift from the 50 independent companies that existed in the 1980s. 

Meanwhile, China's subsidized energy sector, lower labor costs and accessibility to critical minerals, has made it increasingly difficult for American and European plants to compete.  Similarly, Russia's abundant supply of natural gas contributes to their cheaper fertilizer products allowing the country to maintain a consistently strong position in global trade.  In turn, the U.S. and European nations have scaled down domestic capacity or seen small plants absorbed into larger corporations resulting in consolidated competition.  

How Much Fertilizer Does the U.S. Need to Produce?

According to University of Illinois data, 25% of fertilizer used by American farmers is imported. A relatively small portion of this percentage represents nitrogen and phosphorus imports because both are produced domestically. Potash claims the largest import percentage and has been primarily sourced from Canada, China, or Russia. Since 2020, prices have been extremely volatile because of global dependence on potash originating or having to pass through politically charged regions of the world.  It's not that the United States needs so much, it's that the whole world requires fertilizer for agricultural security.

With only one quarter of necessary fertilizer being  imported it would seem that domestic production could expand to fill the gaps.  However, the fertilizer industry in the United States has been criticized for its corporate consolidation.  Potash specifically has come under scrutiny and, because it is primarily controlled by two companies, has been called a duopoly harmful to American agriculture. 

What is helpful for one sector of agriculture can create pressure in another. A limited number of potash suppliers and raw mineral processing plants means American fertilizer producers can charge more for their small supply of products. Yet, current pricing makes it increasingly difficult for American agriculture to thrive considering fertilizer accounts for 10%-40% of farm expenses.

Can Economic Policy Change Fertilizer Production in the United States?

The situation pits two perspectives against each other in the extreme. First, there is the idea that if you have a limited supply you can charge more for less and that means the American fertilizer industry is in a winning situation with its constrained supply.  Second, is the idea that if you have an abundant supply you can sell it more often even if you are selling it at a cheaper price.  Is the U.S. fertilizer industry short changing itself with small supply and high priced products?

In theory, depressurized farmers will grow more crops and more crops need more fertilizer and demand will spur fertilizer companies to increase capacity. If we are producing that fertilizer domestically then multiple American businesses stand to be in a healthy position. 

Economic policy has been at work for years in its attempt to influence pieces of the agricultural puzzle. Previously, under the Biden administration, close to $1 billion in grant money was made available to American fertilizer producers to boost domestic production and combat the volatile prices U.S. farmers were facing on imports.  The Fertilizer Production Expansion Program was meant to fill gaps created by geopolitical supply disruptions and build regionally strong agricultural systems. Grants have been awarded to farm focused companies or startups providing innovative and sustainable production systems building supply chains in the U.S.

More recently, under the Trump administration, tariffs have been put in place to protect American businesses with the hope that insulation would foster new production in the fertilizer sector. While they haven't directly produced the desired outcome, they have, according to the latest announcement of federal funding initiatives, produce money that can be used to reshore fertilizer production.

Neither mechanism will diversify the industry enough to create immediate price drops for farmers looking to fertilize their crops this season or even into 2027 growing seasons. Projects that began in 2022 under the Fertilizer Production Expansion Program have yet to come fully online.  Based on that, projects kicked off under the Trump administration are also likely to take five to ten years to create a positive impact for farmers. 

The Biden and Trump administrations both looked into the nuances of American agriculture, particularly its consolidation.  And, both discussed the use of anti-trust lawsuits to address potential price fixing on the part of big corporations who have absorbed large swaths of industry.  For fertilizer, that means launching a full investigation into whether or not the major four producers are working together to control supply and keep price floors high.  Perhaps dismantling what currently exists will create room for diversification.

All three mechanisms prompt bigger questions, even if they stand to be viable long term solutions. Is it worth subsidizing expansion if we don’t first address consolidation? Should we ever place a tariff on something as vital as potash that isn’t produced domestically even if it does produce money that can be used for grants in the future?

Reliable Supply Chains or Cheap Fertilizer? 

Secretary Rollins’s announcement of support for reshoring fertilizer production could hold promise because it will make use of multiple economic mechanisms simultaneously. Tariffs will scale back on raw materials needed to make fertilizer and the products farmers need right now in an effort to create short term relief.  G-20 countries, responsible for 75% of global commodity trading, have been asked to stop prohibiting specific exports. Antitrust investigations will take a closer look at the behavior of the major four fertilizer companies.  And, grant money will continue to flow to companies diversifying not just who produces fertilizer but how American farmers can protect crop yields.  The USDA is also working strategically with the department of commerce and the department of energy to make the critical minerals our supply chains require more accessible. The USDA estimates that fertilizer production could decrease imports by 11 million tons once funding is organized and projects are fully up and running.

Collectively, efforts should decrease supply chain shocks which could create consistent pricing for farmers even if it doesn't reduce costs significantly.  If the win is to simply stop fertilizer prices from climbing then the multi- pronged strategy could be the ticket. Knowing what to expect in the expense column is valuable to farm families operating with small profit margins.  However, no domestic policy is invincible when it comes to geopolitical conflicts.  Even as momentum in America’s fertilizer industry picks up, we will still be dependent on imports in the short term.